Bitcoin

3 things you need to understand before you invest in bitcoin

Bitcoin price has risen to its all-time high surpassing the $65,000 mark. Whenever the price is increasing, there will be people who want to start investing in bitcoin. Here are the 3 things you should know before you start investing in bitcoin.

Bitcoin is a decentralized digital currency hence is not regulated by most of the countries in the world. It is not similar to the currency that we are using such as USD, AUD, MYR. Because of its decentralized nature, the government might not like it because there is no control over the use of this currency. It might never be regulated and it also means the price can be very volatile.

There is no way to determine the intrinsic value of bitcoin. Bitcoin is not a productive asset. Unlike stock investing, there are several methods to determine the intrinsic value of a particular stock. We buy a stock when the stock is undervalued. Doing this will increase our chance of winning. We invest in stocks when we believe the company performance is good. It can generate good income / dividend to us as shareholders. Bitcoin can never generate income. The price is determined solely by the emotion of the buyers and sellers. When there are more buyers than sellers, the price will move up. When there are more sellers than buyers, the price will move down. The winning chance of bitcoin investing cannot be determined properly.

Now the bitcoin price is at its all-time high. There is one famous quote by Warren Buffett – be fearful when others are greedy and be greedy when others are fearful. Currently, most of the people are greedy, hoping the price will go higher and higher. Do you want to be the one who buy it at all-time high? We should be buying low and selling high. Unfortunately, most retail investors like to buy high and panic sell when the price is dropping fast.

Understand the 3 points above before you start to invest in bitcoin. Ask yourself the reason why you want to invest in bitcoin and have proper diversification to avoid adverse risk.

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Is it too late to invest in Bitcoin?

Bitcoin’s price has been climbing from RM 40,000+ to RM 204,900 from Oct 2020. Many people now are becoming more interested to know more about Bitcoin and asking whether it is too late to invest in Bitcoin. After Elon Musk tweeted that the electric vehicle maker would suspend car purchases using bitcoin, Bitcoin price slid.

When considering Bitcoin as one of your investment tools, you need to examine your own risk tolerance. As explained before in previous newsletter, Bitcoin has no fundamental. It is like currencies, the value is determined by the supply and demand for the said currency. Hence, the volatility is great. If you are investing in crypto currency, you must be ready to risk your capital. Bitcoin has dropped its value from RM15,000++ to RM10,000+ based on history record. Losing most of the value over short period of time is hence not uncommon.

However, there are few reasons you can consider investing in Bitcoin:-

Diversification from your current investment portfolio: Crypto is also considered as one of the digital currencies that might be used in the future.
Hedge on inflation: currently the inflation is high as dollar is depreciating much in value due to too much printing of money. Putting some monies into crypto can be a hedge on inflation.
Massive returns on swings: as crypto’s volatility is high, if you can time the entry and exit, you might profit from the volatility.

Bitcoin’s price dropped again. Is it the right time to invest? Up to you.

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Is Bitcoin worth investing in?

While Bitcoin is recently hitting its all times high, I get people asking me about how to invest in Bitcoin or whether they should go into Bitcoin investment now. If you are interested about Bitcoin topic, you can click here for some basic knowledge about it and here to read more about account opening.

Below are my personal view about Bitcoin (do your own due diligence, this is my personal view and is not a buy or sell recommendation):-

Bitcoin has no fundamental hence it is not a productive asset. I view Bitcoin as one of the commodity products like precious metal, e.g. gold, silver, oil and agriculture products, e,g, soy, wheat, and even currencies like USD and MYR. These types of products have no intrinsic value. The gain is purely based on speculation on the future prospect of such assets and the demand. Hence, when many people think that the products will be needed in near future and many are buying into it, the assets will be rising in price. Same goes to what happen recently, Bitcoin price is increasing after Master Card and Tesla announcing their acceptance and usage of Bitcoin. If you are buying into this asset, you shall understand how it works and believe it will be used in the future. Buying Bitcoin without understand its function is a pure speculation and almost equivalent to gambling your money into something unknown to you.

Bitcoin is decentralized money. The current currencies that we are using, i.e. USD, MYR are centralized money. The value of the currencies is largely controlled by the Central Government or Federal Reserve. Bitcoin is not being controlled by anyone hence can be viewed as a threat to the current monetary system. It is hence being considered as risk in investing in it as the value of Bitcoin can eventually be affected by the general acceptance of the various governments. If the governments are imposing strict rules (if they are able to do so), what do you think the price of Bitcoin will be? Just like what happen to Alibaba when the government is imposing rules on its monopolistic practices.

While saying the potential effect of government on Bitcoin, it is also important to note the feature of decentralized nature of Bitcoin. Personally, I felt that people are moving into freedom zone which people do not like to be controlled. One of the obvious examples is people is currently having free talk and comments on various online blogs and forums disregarding the government control. This is also why many people are favouring the online forums and social media platforms on expressing their views. Will Bitcoin be favoured as well in the future because it is something that not being controlled by the Government? I started to invest some monies in Bitcoin viewing it is one of the assets that can help me to diversify my risk of the current currencies. Also, I personally believe that it could be the future trend of the community who treasure freedom and digital. Hence, it is my view that Bitcoin can emerge as the currency that can potentially replace the current centralized monetary system.

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How to buy Bitcoin in Malaysia?

Is Bitcoin legal in Malaysia? This is one of the most popular question in Malaysia. Bank Negara issued a statement mentioning that bitcoin is not recognized as a legal tender in Malaysia on 6 Jan 2014. In April 2019, the MAS referred it as a digital payment token for purposes of the Payment Services Act. It is unregulated in Malaysia.

We can buy Bitcoin in Malaysia through “Luno”, the first Malaysia’s regulated cyptocurrency exchange platform. It is fully licensed by Security Commission to operate in Malaysia.

Currently the platform is having over 6 millions customers and have processed over 17 billion USD worth of coins. At the moment, there are only 4 crypto currencies available in the platform, i.e. Bitcoin, Ethereum, XRP and Litecoin.

One can buy coins using local currency, MYR and sell the coin easily through the platform. Luno charges a small percentage of fee on selling and buying the coins if the transacted amount is small.

To open the account in Luno is easy but it requires several verification steps to prove identify. You can register a free Luno account via this link and receive RM25 worth of Bitcoin when you first buy min RM250 worth of coin.

Disclaimer: this is not a recommendation to buy / sell bitcoin. Do your own due diligence before starting. The writer has no liability on the loss incurred due to action taken for investing in Bitcoin.

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How does Bitcoin work?

Bitcoin is one of the cryptocurrencies, it is a type of virtual money which present only in the online world. It can be purchased using real money currency such as USD or local currency MYR. It is not controlled by the government or banks and thus it is often referred as “decentralized money”.

It can be used to purchase products and services if the seller accepts it. Not many shops are accepting Bitcoin yet and some countries ban it. It has a private code tied to each coin in which its value lies. When it is transferred online, its transaction will be tracked using a public list – blockchain. Since every transaction is being tracked, it is hard to be copied, and hence hardly any “fake bitcoin”.

The supply of Bitcoin is limited to 21 million coins, and all the coins need to be mined. Once all the 21 million coins have been mined, there will be no more supply. Hence, this is why the value of bitcoin can rise sky high because when the supply is limited while the demand currently is high.

As of end of 2020, around 18.5 million coins have been mined, leaving less than 3 million coins to be mined. Mining process is to complete the “block” of verified transactions of the bitcoin. Each miner doing the verification task might be rewarded with portion of the bitcoin. The reward of bitcoin is only given to the first miner who complete the task, hence not every miner completing the task will get the reward. This is the way to own bitcoin without paying “real” money.

Want to buy bitcoin in Malaysia? Click this link to open a free account from Luno – the first regulated cryto currency platform by Security Commission of Malaysia.

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